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Certification of Corporate Accounting May Carry Unexpected Effects
Daily Policy Digest

Economic Issues / Corporations

Friday, August 16, 2002
Requiring corporate officers to certify the accuracy of their company's accounting statements may carry some surprises, observers predict.

  • The most serious may be to discourage risk -- generating lawsuits due to accounting disputes because certification amounts to promising the impossible: indisputable accounting.
  • Just to play it safe, executives may shun bold new ventures.
  • Critics charge that the new rules will be a bonanza to trial lawyers, with CEOs and CFOs becoming juicy new targets for class-action suits.
  • Executives may well demand greater pay to compensate for the added risks -- and higher insurance premiums to cover those risks.
Finally, since certification applies only to publicly traded companies, promising new companies will have an incentive to stay private -- depriving investors of new opportunities.

Source: Alan Reynolds (Cato Institute), Editorial: "Expect Adverse Effects," USA Today, August 16, 2002.

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